Question
Here go again I want to understand right this exercise, please help: Suppose that in this economy all the funds for capital come from savings
Here go again I want to understand right this exercise, please help: Suppose that in this economy all the funds for capital come from savings by the 10 individuals. Firms' demand for capital is given byQD=100100r.
Questions:
What is the market supply for funds if the interest rate is 30%?
Qs=?
What is the market supply for funds if the interest rate is 70%?
Qs=?
What is the equilibrium interest rate that clears the capital market?
QD=Qs
100-100r=100r
100=200r
r=0.5
What is aggregate consumption in each period at that interest rate? C1 and C2?
QD=C1=100-100(0.5)
C1=50
C2=50*(1+0.5)
C2=75
So please help me what is the procedure to obtain Qs when r=30% and r=70%. Many thanks.
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